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SWM Schweitzer-Mauduit International

Participants
Mark Chekanow Director, IR
Jeffrey Kramer CEO & Director
Andrew Wamser EVP, Finance & CFO
Steven Chercover D.A. Davidson & Co.
Daniel Jacome Sidoti & Company
Call transcript
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Operator

Welcome to SWM's Second Quarter 2019 Earnings Conference Call. Hosting the call today from SWM is Dr. Jeff Kramer, Chief Executive Officer. He is joined by Andrew Wamser, Chief Financial Officer; and Mark Chekanow, Director of Investor Relations. [Operator Instructions].

to floor pleasure to my now turn over the Mr. It's Chekanow. may begin. you Sir,

Mark Chekanow

Thank I'm joining morning, of good earnings you, and Darinda, everyone. our quarter at Thank results. discuss Investor SWM. Mark you to for us second XXXX Relations Director Chekanow,

begin, materially you the in Before for suggested these from in the I'd on comments Actual statements. a to on report our include Securities filings, Commission Form quarterly annual in reasons, detail comments discussed call XX-Q results more conference forward-looking like which number results Form included and our remind we Exchange that today's may XX-K. are our of differ by and including reports

otherwise, these in -- release. measures on measures stated Some relates are the our measures section of this release the and prior financial the operational period earnings of Investor this the during are Relations are year operations. this and comparisons closest financial website, and earnings appendix GAAP the www.swmintl.com. are presentation and presentation non-GAAP the of included on available call discussed continuing to to Unless to financial metric Reconciliations measures. This

the turn to Jeff. call over now I'll

Jeffrey Kramer

segments consistent with some contributed reductions, of materials continued and million, and $X.XX, second we everyone. morning, sales of delivering It was demonstrate fixed-cost easing improvement. and expectations to margin organic our AMS the last raw growth. expansion, strong gains to of profit and combination XXXX. sales a quarter gains X%. up highlighted efficiency $XXX Thank Yesterday, of both A good adjusted quarter Mark, which you, by to good equal of were reported year EPS positive a

mix, more to offsetting start also and we to as where and like assets currency business over recent our lower sales than projects, a product channels. this strategic key profit AMS releases contributing where the our officially to addition second a new performance for growth we growth is several EP I business weeks, call last both solid quarter which issued an delivered press attention and in showing Asia quarter. first and year well. transportation our and year's would after announced volumes introduction to unfavorable Positive in improvement in leverage challenging sequential price EP capacity two we fast-growing segment, filtration

which Overall, from are million. to free $XXX in like One at would we pleased I'll flow our XX% AMS. tracking a where is detail were quarter excluded our our to this GAAP from reflect profits up pure will businesses, that note our we adjusted $X.XX Brazil organic as the the quarter later growth. Andy assessment tax earnings call, and stand second cash pre-X,XXX was related EPS. year-to-date. And that and with towards onetime of in now XX% review operations midyear, expense did note, significant Segment is expected and in beginning I

X% of strong by growth impacts, or filtration, these X%, for was Sales fast-growing lines. excluding fundamentals remain transportation led product and and currency

exceeding profit hit first for the AMS the During milestone quarter, time. segment margin a with XX%

of strong been X these sites the production Asian position important maintaining to fully and for demand investment fully have this in with we announce healthy Recall, one only the on facility in And be once investment industry films puts led has This surface continue last expanded operational. our us that China. committed AMS commissioned in remain line transportation, the we to portfolio, first and completed, film films follow-on a films. local fastest-growing now Europe continents. upgraded our is across Paint global This our Within year, leadership to a line latest us see across and capacity the market. of we technology. recently we applications will international manufacturer protection in at protection

our led growth. again, water, business RO Filtration, with double-digit In

need we last is basis. supported customer access drinking bullishness long-term the positive near-term while in underlying continued regarding this improved said by global this on our space a indications As for quarter, are outlook, to water

the replenishment growth. capacity In continued Our for of cycle until and strength additions in customers limited we the of provided our a the specialty evident horizon, filtration on is recent mentioned reasons. have the have new recently competitive product, see but ongoing launch calls, details

product summer in participating July we shows in However, the Asia. offering after officially our during filtration trade announced late several in

manufacturing water serves in represents osmosis us Our filtration critical and new process important of paper product from cartridges the component a as a this in new reverse subsegment.

The marketplace. forward and multiyear vacuum commercial this this capability, a our expanding customer subsegment position we AMS is already manufacturing as membrane the to a and grow an strengthens our several launch paper is customers that achieved, sold as from operations which uniform initial defect-free competitive this products expect our AMS industry. We further our our increases high EP our quality addition produced highly improved feedback and global into we product offer unmatched ramp-up level other of bundling France have relationships. organization, performance, the is through offers supplier material. example synergies and paper preferred enhances an the we our paper our as engineered operations proposition of filtration a RO processing given value within between in With markets of to look in as consistency by our This

up after during a the and construction modestly slightly segment, declined second the strong in remain quarter. but out also the first Rounding quarter, medical sales year-to-date. off Infrastructure quarter AMS were

to sales quarter, pressures and LIP to some were customer filling their inventory with products last with results as results for part consistent our comparison the movements. heat-not-burn declines volume due first between tough products in positives, customers with stable Moving despite X% decline excluding and chain. other increasing. another reflected mix Papers, industry volume A year in by with generally offset overall currency launching quarter pleased divergence operating our supply Recon and was there were X%, price were tobacco papers margin Engineered decreases up while the we

back should the in comparisons We half significantly expect year. the of that these ease

saw Traditional soft its new performing are profile. offset product RTL volumes an printing strategically and papers, was wrapper also also partially nontobacco market the lower We particularly margin have introductions into Recon where deemphasized writing, small cigar by binder well. very Asian products lower was we and in in area our given but

to products while currency without recap, portfolio negative volumes up were So the X% losses lower, mix total price offset our those higher-value than sales the towards impact. given our more shift with

benefit I higher this the on mix wood that the contract of did from that benefit prices that to costs was earlier we while price recapture would year most also higher set note we mix side. pulp

materials' than We quarter. programs acute from performed keep our the continue in the attractive standpoint, raw lower XX-plus-percent and despite at our cost-reduction to and an across look was our less pressures other first generates. capacity margins to EP well segment Cost efficiency the basket volumes

financial detail. I'll discuss in now turn more Andy to the our results to call over

Andrew Wamser

sales Jeff. second quarter X% million, adjusted you, AMS, Starting $XXX with Thank and increased $XX.X profit increased operating to to million. XX%

adjusted impacts our operating XXX AMS was compared put on X% segment, margin impact basis relatively been increase compared EP approximately over While to our strongest are expansion have currency. note, XX%. up sales small adjusted this points to XX%. when margin And operating without Margin just of would sales of currency negative XXXX of quarter was foreign the

of Sales the to gains. resin growth actions benefit our combined softening and polypropylene drove reduce costs with fixed costs the

operating to flow prices from was our sales down quarter continued up were profit market Regarding Paper segment The P&L. up through adjusted X% $XXX during Engineered were contract the currency. X% million, And and million. X%, excluding foreign impact second to to $XX.X the net however, slightly polypropylene, negative

to went earlier again nontobacco mix positive tough the comparisons of effect decidedly LIP, the mix compared offset XX% While was comparison volumes, the a quarter, euro to of that increases more that The our should into growth. and year current volume year trends shed lower our these with negative effect contractual combined net We're we in side, half exchange we to for XXXX, of heat-not-burn. margin positive than up the a portfolio, key price pleased including this the favorable. remained tobacco On rate well. paper second levels profit report in first paper was the ease held operating the Similar And to the to unfavorable hold. quarter. decline X% if price of continue faced

second basis year. quarter, and pressure increase And corporate quarter stock prior chemicals though, margin prices, segment expenses there fees deferred input on recent XX.X%, was other last to operating Corporate labor. this for expenses by versus through from continue pressure our we from were offset costs some P&L. pullback projects. pulp experienced flowing The benefit Separately, there last consulting been was IT XX corporate versus such and year. points for has Wood see rapid versus investments up in Adjusted while we increased modestly year. price some our pulp reversed is delay the up the moderately wood some in a energy, for in compensation the first in as the other but unallocated various costs

to the and consolidated X%. was $XX.X would a have $XX.X profit earnings. On of essentially without Adjusted Shifting net impact flat, but X%, X%. up were operating consolidated up basis, currency increased was million, sales adjusted million, EBITDA

$X.XX in was GAAP and XXXX $X.XX from related activities. assessments impact $X.XX included prior to a quarter versus Second pre-X,XXX the in EPS year Brazil tax

plan with one that materials and/or a programs represents one security-type local taxes interest details final benefits apply we Though, of employees. our relate years, potentially with tax our social this minimize impact. significant in going been to to working that and and XX offsetting may We but credits against. for summarize, matters and favor utilize penalties. pursue local appeals, these tax case the authorities resolving for expense note portion in large for XX-Q, provided to We've We the raw assessments on and approximately

at required potential full However, expense. booking GAAP the this of point, the

expenses The to typical our AMS. relate noncash our mainly in associated tax the accounting our adjusted excluded have with non-GAAP EPS. assessments remainder expenses from adjustments purchase We of

a increase earnings $X EPS Recall interest was ago, that year the year, Results XXXX quarter segments, X%. from were Thus, we up $X.XX expense XXXX deliver the pleased financing. a comparison. our to Adjusted were debt by which earnings represented and growth in in versus solid third offset was strongest our quarter. operating it higher partially driven both quarter were of by the challenging second profit

assessment in adjustments, our interest GAAP out have with on Brazil. interest the associated in we tax split from our debt the expense expense reflected As

normalized XX.X%. rate quarter was Our second tax

of and was the million within was cash guidance. which we finish to flow cash the year-to-date, CapEx million second flow half and approximately to stronger our million flow seasonal million annualizes above. typical million $XX in or at liquidity. $XX be $XX $X in XXXX and to free $XXX our Year-to-date, million. Moving Per quarter year pattern, approximately the expect cash $XX

for expansion transportation spend As growth to and certain a in across higher investments business. capabilities IT reflects our in investments films intelligence reminder, capacity business XXXX the versus particularly AMS, enhanced capital XXXX support the

From the adjusted a out leverage leverage we from debt unchanged facility, perspective, as we EBITDA X.Xx -- to second would the the for year. our close get of credit at to were quarter, terms expect we lower XXXX, end we and as the tick year-end net at of

Now Jeff. back to

Jeffrey Kramer

Andy. Thanks,

Our these the intention and believe all could over on international growth innovative prospects our new the quarter with segments development. expansion initiatives our years. X-plus operating AMS vision deploy as and the and to to and as several benefit we well want in synergies. initiatives operational expansion margin made completed delivering we remain capabilities on We other deliver cost-reduction integrate particularly and during as underscore both in our targeted planned acquisitions tracking and filtration. that part AMS are We past projects excellence executing growth year-to-date about quarter. growth product capital, also are We strategic from And performance as for capacity of growth transportation companies profit recently excited to were

company, with While at its profit benefit pleased acquisitions. M&A add the and stands where growth the to and continue business we diversify of the without look strong scale year-to-date to are we

continue stable as to to face side, several tobacco EP well lines. trends opportunities are of in to product managing strategically in improve headwinds structure. industry the in efficiencies focus business areas as with our And On cost of these efforts the high-value positive our we and we the profitability

wood be raw Lastly, appear our of rise in drag absent from And inflation was the in current half XXXX, materials the levels while and results a on costs should resin a right our favorable the in trending pulp second year. both direction.

for We and support. our Darinda, the And please questions. concludes line that appreciate interest continued your remarks. open

Operator

[Operator Instructions].

Our from Steve first Chercover from question comes Davidson. D.A.

Steven Chercover

is first my phase? a commercial question on Are Or filtration they paper new So they are production? in trial products. full-blown in

Jeffrey Kramer

and are product this commercialized the past several They scaling qualified at been at stage. customers. fully We've are up fully this months over several

Steven Chercover

good. That's

volume Okay. do with volume maintain line the be sticking In you And half, X% mix? the through with you half, first decline. rich And a to paper, is expect a the then attrition? the second mix Again, can the in price offset. more declines such

Jeffrey Kramer

So be positive we expect to continue mix overall. our to

If declines are in we if summary printing One, you things. nontobacco a materially in deemphasized so recall, that. the a our different and segment, writing of volume papers down had of couple our we're deliberately Paper

Second reconstituted tobacco half in you recall pipeline. first customers one of products filling our year, is if product the was in our heat-not-burn, year, the last of the

wrapper are be ease of positives And binder. comparisons those of up. we And some Recon weakness in the sustainable. and think so to the didn't And in we our should were second a we more our business in have believe but bit little half traditional those seeing lines going year, seen

pressures So product margins. we mix also to see but half, the we see in volume expect and second some good to expect still

Steven Chercover

in at Okay. they sustainability, margins And word, are the keying the AMS, on in XX%? sustainable

Jeffrey Kramer

think We peak. we've a bit of hit Yes. little a

always solid quarter traditionally Second us. is a quarter for good

we I gains, where exactly is we're think go. getting we're you seeing to predicting them ease that. general We're be in But our off. seeing products the So some seeing is should and high-margin trend shares efficiency good what launched expect it to

So the up be margin quarter peak will I lower this margins half think than but in be year-on-year will the materially. second

Steven Chercover

tariff sense commission will film China? required or you in of TPU the a savings us And be by Can give any capital freight producing a perhaps there line? to

Jeffrey Kramer

Yes.

these materially expensive not lines install. One, So are to of things. couple a

We have the facility.

our of we another start we these dollars just in. we and have add with put the plant It's mind capability capital it. so to So expanded in in the Suzhou into to millions things that line when of few

tariff on terms time. huge the changing see a don't is know really In But basis. this impact of tariffs, at you a we situation day-to-day

know. to hard it's So

important important think, will don't I current businesses. for well that our prepared thing and think future we're a But years. this so to -- think I I big as impact we it's the in now uncertainty, see right the for continue note many

the we And flexibility manufacture certain markets. gives flexibility on products of lot us so for produce various having of a to continents where

Steven Chercover

entry not capital beyond advantage? particularly are mover Okay. are And since they first to intensive, there barriers

Jeffrey Kramer

Yes. lot There's a to market. entry in barriers this of

to et high-performance without of able what and putting have bubbles If no physical about these gel on films are are characteristics you clarity, think drape particles, they certain films these a the very be to going to, have shapes in, air level have no to optical meaning cetera. complex pinholes, to they be defect-free,

easy so And surface-protection think a manufacture transportation high-quality a manufacture it's I thermoplastic polyurethane film, to it's film. easy to not

Steven Chercover

there per endure price you tree? input And to Okay. contractual have Are pulp as last question. that givebacks such as any

Jeffrey Kramer

that Not see this we year. No.

Operator

from Sidoti question next Our from comes Jacome & Dan Co.

Daniel Jacome

I appreciate question, time. and one Just the

you So Q at seeing the first the commentary like level on 'XX little It construction can we you're to didn't just expected, a you really more looks rebound had about call. end markets? talk the bit in what second quarter, it in the it your looking

to in of bit that. about wanted I seeing every more a little pocket you're So what learn

you year? next at made that, where you can residential the building changed into targeting to You you're sort construction, cycle are? commercial where X% erosion looking weaknesses example, highway after were Conwed second details, viewpoint construction. about share the the then for half and X% kind I in your then are And the and has of And you these out when that growth. blanket figure of for end how market still seeing think acquisition,

longer through term? that Just there's to still blip? else something we're want short-term we realistic about kind -- need a you guys think of going Or and to are just

Jeffrey Kramer

it's think more blip. We a of short-term Yes.

do overall projects, have it's been rains, weakness really you business, more construction X a which the result Really, our which and obvious Some has it ways, big is soil for of of and this two it. flooding And One, surface. have stabilization about has it's really can't impacted in the interesting. you if businesses. think as materially is actually the things we impacted you weather extreme

cetera. need So blankets they et much, as the don't surface

extreme impact one weather the actually surprisingly, the hay of piece, as is the has actually in second used And production. the hay is had pillars The blanket. on

there's been from the blankets actually because make some actually ours. able customers not different capacity a our to in limited And end-use and so raw being of material

of X, kind it's that. X a So punch on

So that weakness there half. been has for the first

And We see the you see a to weather the to are I today. think But continues second bit these expecting even be quarter. passing storms you little stronger, honest, see in yesterday, extreme through.

it these be predict are it's still second I'm line. bit in We I of a quarter. of a on part this. to the now cautious patterns, in still the expect it how more We our supplier half but important of very little solid the weather leading product because

strong relationships. We customer have very

anything more a it's think I blip So else. of than

Andrew Wamser

just And provide mean low I down context, to only it's single digits.

that So not material. it's

Operator

showing I'm Jeff no now questions remarks. Instructions]. like call Dr. Kramer would closing to this turn to for over I the back [Operator at further time.

Jeffrey Kramer

I solid Well, we're to we'll and was is again, the the I very that that we I be to thought on noticing support. can executing everybody's expectations. that appreciate, do things everybody's we've perform on, said everybody right. a All and continue meet we it executing will best hope quarter.

you very thank much. So

Operator

thank program. participating concludes gentlemen, today's in This conference. for you and Ladies the

may and You wonderful disconnect, have a day.